Ecuadorian Competitiveness:
Ready for the Next Stage?
Professor Michael E. Porter
Harvard Business School
Quito, Ecuador
October 24, 2011
This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive
Advantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); “Strategy and the Internet” (Harvard Business
Review, March 2001); and a forthcoming book. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or
by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Michael E. Porter. Additional information may
be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu.
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Prosperity Performance
Selected Lower and Middle Income Countries
PPP-adjusted GDP per
Capita, 2010 ($USD)
$32,000
Average: 5.4%
South Korea
Israel
$28,000
Cyprus
New Zealand
Greece
$24,000
Bahrain
Slovenia
Portugal
Oman
Saudi Arabia
Czech Republic
Slovakia
$20,000
Hungary
Poland
Estonia
Croatia
Mexico
$16,000
$12,000
$8,000
$4,000
Argentina
Chile
Uruguay Latvia
Malaysia
Lithuania
Panama
Russia
Lebanon
Bulgaria
Venezuela
Romania
Dominican Republic
Costa Rica
South Africa
Tunisia Peru
Colombia
Thailand
Belize
Albania
Algeria
Guatemala
Ecuador
Ukraine
Guyana
El Salvador
Jordan
Egypt
Paraguay
Sri Lanka
Bolivia
Honduras
India
Nicaragua Philippines
Turkey
Brazil
Belarus
Trinidad
& Tobago
Average: $13,910
Kazakhstan
China
Georgia
Vietnam
Latin American countries
Pakistan
Other countries
$0
0.0%
2.0%
Source: EIU (2011), author’s calculations
4.0%
6.0%
8.0%
10.0%
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000 - 2010
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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12.0%
14.0%
Copyright 2011 © Professor Michael E. Porter
Export Performance
Selected Countries
Exports of Goods and
Services (% of GDP), 2010
100.0%
Average: 2.9%
90.0%
Hungary
Panama
Slovakia
80.0%
Czech Republic
Estonia
Bahrain
Vietnam
Trinidad & Tobago
United Arab Emirates
Lithuania
Thailand
70.0%
Belize
Slovenia
60.0%
Oman
Saudi Arabia
Paraguay
Latvia
South Korea
Tunisia
50.0%
Ukraine
Croatia
Algeria
Costa Rica
30.0%
20.0%
10.0%
Russia
Average: 45.1%
Jordan
Kazakhstan
Honduras
40.0%
Bulgaria
Poland
Nicaragua
Chile
Israel
Ecuador
Portugal
South Africa
New Zealand Venezuela
El Salvador
Dominican Republic
Greece
Turkey
Colombia
Pakistan
Uruguay
Georgia
Romania
Mexico
Bolivia
Egypt
China
Guatemala
Albania
Peru
Argentina
Lebanon India
Brazil
Latin American countries
Other countries
0.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Change in Exports of Goods and Services (% of GDP), 2000 - 2010
Source: EIU (2011), authors’ analysis
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Inbound Foreign Investment Performance
Stocks and Flows, Selected Countries
Inward FDI Stocks as % of
GDP, Average 1999 - 2009
90.0%
Average: 19.7%
Trinidad & Tobago
80.0%
Guyana
70.0%
Tunisia
Bahrain
Estonia
Vietnam
60.0%
Panama
Jordan
Chile
Lebanon
Hungary
Nicaragua
50.0%
New Zealand
Cyprus
Bolivia
Czech Republic
Belize
Kazakhstan
Bulgaria
Honduras
Slovakia
40.0%
30.0%
20.0%
10.0%
Malaysia
Portugal
South Africa
Croatia
Thailand
Latvia
Poland
Venezuela
Argentina
Egypt Romania
Costa Rica
Mexico El Salvador
Ecuador
Israel
Russia
Colombia
Peru
Brazil Uruguay
Slovenia
Guatemala
Paraguay
Ukraine
Philippines
Dominican Republic
Greece Belarus
China Albania Saudi
Sri Lanka Pakistan Arabia
South
Algeria Turkey
Korea India
0.0%
0.00%
10.00%
20.00%
30.00%
Georgia
Average: 35.0%
Latin American countries
Other countries
40.00%
50.00%
60.00%
FDI Inflows as % of Gross Fixed Capital Formation, Average 1999 - 2009
Source: UNCTAD, World Investment Report (2010)
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
The Ecuadorian Economy in 2011
•
Ecuador has had a long history of economic and political instability
•
Since 2001, Ecuador has enjoyed relative macroeconomic stability as a result of
dollarization
•
High oil prices have allowed the country to increase government spending
•
Ecuador export growth has been driven by commodities prices
BUT
•
In 2010, the Ecuadorian economic growth was slower than other Latin-American
countries
•
Prosperity remains low
•
High poverty levels and inequality persist and large segments of the population lack
access to basic needs
•
Ecuador is overly dependent on oil exports
•
Higher economic growth rates and poverty reduction are possible only if Ecuador can
substantially improve competitiveness
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
What is Competitiveness?
• Competitiveness is the productivity with which a nation uses its human,
capital, and natural resources
– Productivity sets the sustainable standard of living (wages, returns on
capital, returns on natural resources)
– It is not what industries a nation competes in that matters for prosperity, but
how it competes in those industries
– Productivity in a national economy arises from a combination of domestic
and foreign firms
• Only competitive businesses can create wealth and jobs
• Nations compete to offer the most productive environment for business
• The public and private sectors play different but interrelated roles in
creating a productive economy
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Comparative Labor Productivity
Selected Countries
Real GDP per employee
(PPP adjusted US$), 2010
$50,000
Average: 1.25%
$45,000
Trinidad & Tobago
Israel
South Korea
$40,000
Slovenia
Saudi Arabia
$35,000
Estonia
New Zealand
Greece
$30,000
Chile
Argentina
Portugal
$25,000
$20,000
$15,000
$10,000
$5,000
Bulgaria
Slovak Republic
Czech Republic
Poland Lithuania
Kazakhstan
Latvia
Jordan
Hungary Tunisia
Costa Rica
Mexico
Peru
Russian Federation
Ecuador
Thailand
Sri Lanka
Guatemala
South Africa
Egypt Colombia
Brazil
Romania
Algeria
Dominican
Ukraine
Bahrain
Republic
Pakistan
India
Bolivia
Philippines
Vietnam
Cyprus
Turkey
Uruguay Malaysia
Venezuela Croatia
Average: $20,882
China
Latin American countries
Other countries
$0
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Growth of real GDP per employee (PPP-adjusted), 2000 - 2010
Source: Authors calculation Groningen Growth and Development Centre (2011), EIU (2011)
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
What Determines Competitiveness?
Endowments
•
Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use
of endowments
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Copyright 2011 © Professor Michael E. Porter
What Determines Competitiveness?
Macroeconomic Competitiveness
Human
Development
and Political
Institutions
Macroeconomic
Policies
Endowments
Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient
• Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use
of endowments
•
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Components of Macroeconomic Competitiveness
Macroeconomic
Policies
•
•
Fiscal policy
–
–
•
•
•
Government surplus/deficit
Government debt
Human development
–
–
Monetary policy
–
–
–
Social Infrastructure and
Political Institutions
•
Inflation
Business cycle management
Savings
Political institutions
–
–
–
–
–
•
10
Political freedom
Voice and accountability
Political stability
Government effectiveness
Decentralization of economic policymaking
Rule of law
–
–
–
–
–
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Basic education
Health
Security
Civil rights
Judicial independence
Efficiency of legal framework
Freedom from corruption
Copyright 2011 © Professor Michael E. Porter
What Determines Competitiveness?
Microeconomic Competitiveness
Quality of the
National
Business
Environment
State of Cluster
Development
Sophistication
of Company
Operations and
Strategy
Macroeconomic Competitiveness
Human
Development
and Political
Institutions
Macroeconomic
Policies
Endowments
Productivity ultimately depends on improving the microeconomic capability of the economy and the
sophistication of local competition
• Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient
• Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use
of endowments
•
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
What Determines Competitiveness?
The external business
environment conditions
that enable company
productivity and
innovation
Microeconomic Competitiveness
Quality of the
National
Business
Environment
State of Cluster
Development
Sophistication
of Company
Operations and
Strategy
Macroeconomic Competitiveness
Macroeconomic
Policies
Social
Infrastructure
and Political
Institutions
Endowments
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
What Determines Competitiveness?
Microeconomic Competitiveness
Quality of the
National
Business
Environment
State of Cluster
Development
A critical mass of firms
and institutions in each
field to harness efficiencies
and externalities across
related entities
Sophistication
of Company
Operations and
Strategy
Macroeconomic Competitiveness
Social
Infrastructure
Macroeconomic
and
Political
Policies
Institutions
Social
Macroeconomic
Infrastructure
Policies
and
Political
Institutions
Endowments
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Competitiveness and Poverty Reduction
Social
Development
Economic
Development
• There is a strong connection between economic and social
development
• Improving competitiveness and decreasing poverty requires
improving the economic and social context simultaneously
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
What Determines Competitiveness?
Microeconomic Competitiveness
Quality of the
National
Business
Environment
State of Cluster
Development
Sophistication
of Company
Operations and
Strategy
Internal skills, capabilities,
and sophistication of
management practices of
companies
Macroeconomic Competitiveness
Social
Infrastructure
Macroeconomic
and
Political
Policies
Institutions
Social
Macroeconomic
Infrastructure
Policies
and
Political
Institutions
Endowments
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Geographic Influences on Competitiveness
Neighboring Countries
Nation
Regions and Cities
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Prosperity Performance
U.S. States, 1999 to 2009
$70,000
Delaware
Gross Domestic Product per Capita, 2009
$65,000
High but declining
versus U.S.
Wyoming
U.S. GDP per Capita
Real Growth Rate: 0.86%
Alaska
High and rising
prosperity versus U.S.
Connecticut
$60,000
New York
Massachusetts
New Jersey
$55,000
Colorado California
Washington
$50,000
Illinois
Nevada
U.S. GDP per
Capita: $46,093
Minnesota
Texas
North Carolina
New Hampshire
Rhode Island
Kansas
Pennsylvania
Wisconsin
Indiana
Ohio
Utah
Missouri
Florida
Maine
Arizona
Tennessee
Georgia
Michigan
$35,000
New Mexico
Kentucky
South Carolina
West Virginia
North Dakota
Nebraska
Louisiana
$45,000
$40,000
Virginia
Hawaii
Maryland
Iowa
Oregon
Oklahoma
Vermont
Alabama
Arkansas
Montana
Idaho
Mississippi
Low and declining
versus U.S.
South Dakota
Low but rising versus U.S.
$30,000
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Gross Domestic Product per Capita Real Growth Rate, 1999 to 2009
Notes: Real GDP figures in 2005 chained US dollars from the Bureau of Economic Analysis. Growth rate is calculated as compound annual growth rate. D.C. excluded
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright © 2011 Professor Michael E. Porter
Regions and Competitiveness
• Economic performance varies significantly across sub-national
regions (e.g., provinces, states, metropolitan areas)
• Many essential levers of competitiveness reside at the regional level
• Regions specialize in different sets of clusters
• Cluster strength directly impacts regional performance
• Each region needs its own distinctive competitiveness strategy and
action agenda
• Improving competitiveness requires effective policy collaboration
between regions and the national government
• Decentralization is important to foster regional specialization, internal
competition, and greater government accountability
• Effective decentralization requires clarity on roles and responsibilities,
and sufficient administrative capacity at local and regional level
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright © 2011 Professor Michael E. Porter
Economic Coordination with Neighboring Countries
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Competitiveness and the Neighborhood
• Opening trade and investment among neighbors
– Expands the available market
– A nation’s neighbors are its most natural trading and investment partners
– The natural path of internationalization for local firms is the neighborhood
– Open trade and investment make each country a more attractive location for
investment
• Economic coordination to drive improvements in the business
environment
– Capture synergies in policy and infrastructure
– Gain greater clout in international negotiations
• External agreements to help overcome domestic political and
economic barriers to reform
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright © 2011 Professor Michael E. Porter
Economic Integration Among Neighbors
Capturing Synergies
Factor
Conditions
Context for
Strategy
and Rivalry
• Improving the
efficiency of the
regional
transportation
network
• Eliminating
trade and
investment
barriers within
the region
• Creating an efficient
energy network
• Simplifying and
harmonizing
cross-border
regulations and
paperwork
• Enhancing regional
communications
and connectivity
• Harmonizing
administrative
requirements for
businesses
• Coordinating
anti-monopoly
and fair
competition
policies
Demand
Conditions
• Opening
government
procurement
within the region
Harmonizing
environmental
standards
• Harmonizing
product safety
standards
Related and
Supporting
Industries
Macroeconomic
Competitiveness
• Facilitating crossborder cluster
development
• Coordinating
macroeconomic
policies
– e.g., Supplier
networks
– Transport &
Logistics
• Coordinating
programs to
improve security
and public safety
– Quality
standards
• Establishing
reciprocal
consumer
protection laws
• Linking financial
markets
• Facilitating the
movement of
students for higher
education
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Ecuador’s Competitiveness Profile, 2010
Harvard Country Competitiveness Model
Overall Ranking (113)
Microeconomic
Competitiveness (125)
Macroeconomic
Competitiveness (107)
Social Infrastructure and Pol.
Institutions (117)
Business
Environment
Quality (127)
Macroeconomic
Policy (55)
Company
Sophistication
(114)
Ecuador GDP per Capita
Rank 77
Note: Rank versus 139 countries
Source: Country Competitiveness Model (CCM), Institute for Strategy and Competitiveness, Harvard University (2010)
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Ecuador’s Macroeconomic Competitiveness
Macroeconomic Policy
• Dollarization stabilized the
economy
– Inflation relatively low since
dollarization in 2001
• Expansionary fiscal policy funded
by borrowing and oil resources
However
• Budget deficit threatens the
dollarization model
• Central Bank is no longer an
autonomous institution
Social Infrastructure and
Political Institutions
• Lack of high-quality public education
system
• Weak social security system,
despite some improvements
• Persistent problems with corruption
• Weak legal system and effectiveness
of property rights
• Need for modernization of political
and government institutions
w since dollarization in 2001
• No stabilization fund
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Rank in Global
Corruption Index,
2010
Corruption Perception Index, 2010
New Zealand Finland
Switzerland
Iceland
Austria
U.S.
United Kingdom
France
Estonia
Spain
Low
corruption
Denmark
Sweden
Australia Canada
Hong Kong
Germany
Qatar
Uruguay
Chile
Slovenia
Cyprus
Israel
Costa Rica
Taiwan
Portugal
Poland
Oman South Korea
Dominica
Jordan
Macau
Lithuania
Bahrain
Saudi Arabia
Hungary
Czech Republic
Turkey
Malaysia
South Africa
Croatia
Slovakia
Italy Bulgaria
Georgia
Romania
Brazil
El Salvador
Panama
China
Trinidad and
Greece
Serbia
Tobago
Colombia Thailand Peru
Swaziland
India Morocco
Jamaica
Albania
Guatemala
Gambia
Mexico
Egypt
Dominican
Republic
Argentina
Zambia
Senegal
Kazakhstan
Algeria
Indonesia
Bolivia
Benin
Ethiopia
Guyana
Viet Nam
Niger
Armenia
Syria
Belarus
Ecuador
Uganda
Zimbabwe
Nicaragua
Nigeria
Ukraine
Azerbaijan
Bangladesh
Honduras
Philippines
Nepal
Paraguay
Cameroon Pakistan
Côte d´Ivoire Haiti
Russia
Laos
High
corruption
Venezuela
Burundi
Kenya
Kyrgyzstan
Sudan
Cambodia
Guinea
Chad
Improving
Worsening
Change in Rank, Global Corruption Report, 2010 versus 2006
Note: Ranks only countries available in both years (160 countries total)
Source:Global Corruption Report, 2010
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright © 2011 Professor Michael E. Porter
Quality of the National Business Environment
Context for
Firm
Strategy
and Rivalry
• Local rules and incentives that
encourage investment and productivity
Factor
(Input)
Conditions
– e.g. salaries, incentives for capital
investments, intellectual property
protection, corporate governance
standards
• Open and vigorous local competition
– Openness to foreign competition
– Competition laws
• Access to high quality business
inputs
Human resources
Capital availability
Physical infrastructure
Administrative and information
infrastructure (e.g., registration,
permitting, transparency)
– Scientific and technological
infrastructure
– Efficient access to natural
endowments
Demand
Conditions
–
–
–
–
• Sophisticated and demanding local
customers and needs
Related and
Supporting
Industries
– e.g., Strict quality, safety, and
environmental standards
– Consumer protection laws
• Availability of suppliers and supporting
industries
• Many things matter for competitiveness
• Successful economic development is a process of successive upgrading, in which the
business environment improves to enable increasingly sophisticated ways of competing
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Ecuador’s Business Environment
Strengths
Infrastructure
• Significant improvements in transportation infrastructure
• High mobile phone penetration
Competitive Context
• High levels of entrepreneurship
Other
• A new national agenda for innovation and entrepreneurship
• Improving sophistication of local buyers
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright © 2011 Professor Michael E. Porter
Ecuador’s Business Environment
Weaknesses
Financial Markets
Trade and Investment Liberalization
•
•
FDI limited to oil and mining sectors
•
New restrictions on capital flows
•
High trade barriers
•
Complex custom procedures
•
Few trade agreements with other countries
Weak financial markets
Workforce Development and Training
•
Low skill level of the labor force
•
Poor quality higher education system
Competitive Context
•
Import substitution strategy reducing
competitiveness
•
High level of government subsidies distort
competition
•
Low intensity of local competition
•
Limited internationalization of firms
•
Burdensome government regulations
Innovation Infrastructure
•
Weak university-industry research collaboration
•
Low patenting rates
Other
•
Low level of quality certification
– Labor regulations give rigidity to the market
– Customs and Trade regulations
– Difficult new business formation
•
Weak investor protection and protection of
intellectual property
•
High informality in the economy
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright © 2011 Professor Michael E. Porter
Ease of Doing Business
Ecuador, 2010
Ranking, 2010
(of 183 countries)
180
Favorable
Unfavorable
160
140
120
100
80
Ecuador’s
GDP per capita
rank: 77
60
40
20
0
Source: World Bank Report, Doing Business (2010); GPD per capita ranking based on 2009 GCI data.
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
State of Cluster Development
Tourism Cluster in Cairns, Australia
Public Relations &
Market Research
Services
Travel Agents
Tour Operators
Food
Suppliers
Attractions and
Activities
Restaurants
Souvenirs,
Duty Free
Airlines,
Cruise Ships
Hotels
Maintenance
Services
e.g. Australian Tourism
Commission,
Great Barrier Reef Authority
Local
Transportation
e.g., theme parks,
casinos, sports
Property
Services
Government Agencies
Local Retail,
Health Care, and
Other Services
Banks,
Foreign
Exchange
Educational Institutions
Industry Groups
e.g. James Cook University,
Cairns College of TAFE
e.g. Queensland Tourism
Industry Council
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright © 2011 Professor Michael E. Porter
State of Cluster Development
Kenya’s Cut Flower Cluster
Horticultural Agencies, NGOs & Industry Associations
Horticultural Crops Development Authority (HCDA)
Government Export Policies Targeting Horticulture
Plantstock
Non-Government Organizations
(e.g., The Rural Enterprise Agri-Business Promotion Project)
Greenhouse;
Shading Structures
Trade & Industry Associations
(e.g., Kenya Flower Council)
Irrigation
Technology
Pre-Cooling
Technology
Post-Harvest
Cooling
Technology
Grading / Packaging
Sheds
Packaging &
Labeling Materials
Post-Harvest
Handling;
Transport to Market
Flower Farming
Fertilizers,
Pesticides,
Herbicides
Refrigerated Trucks
Freight Forwarders
Education, Research & Quality Standards Organizations
Research Institutions
(e.g., Kenya Agricultural Research Institute)
Agricultural Cluster
Horticultural
Cluster
Public Universities with Post Graduate Degrees in Horticulture
(e.g., University of Nairobi)
Clearing and
Forwarding Agents
Air Carriers
(Commercial /
Charters)
Quality & Standards
(e.g., EUREGAP Standard, Kenya Plant Health Inspectorate Services)
Tourism Cluster
Sources: MOC student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, Tijan Watt, Harvard Business School, 2007
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright © 2011 Professor Michael E. Porter
Clusters Development Over Time
The Australian Wine Cluster
1991 to 1998
1930
1965
1980
First oenology
course at
Roseworthy
Agricultural
College 1955
Australian Wine
Bureau
established
Australian Wine
and Brandy
Corporation
established 1990
1970
New organizations
created for education,
research, market
information, and
export promotions
Winemaker’s
Federation of
Australia
established
Winemaking
school at Charles
Sturt University
founded
Australian Wine
Research
Institute founded
1950s
1960s
1970s
1980s
1990s
Import of
European winery
technology
Recruiting of
experienced
foreign investors,
e.g. Wolf Bass
Continued inflow
of foreign capital
and
management
Creation of
large number of
new wineries
Surge in exports
and international
acquisitions
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Clusters and Economic Diversification
Linkages Across Clusters
Fishing &
Fishing
Products
Entertainment
Hospitality
& Tourism
Agricultural
Products
Processed
Food
Jewelry &
Precious
Metals
Business
Services
Financial
Services
Publishing
& Printing
Analytical
Instruments
Heavy
Construction
Services
Lightning &
Electrical
Equipment
Communications
Equipment
Forest
Products
Heavy
Machinery
Motor Driven
Products
Production
Technology
Tobacco
Oil &
Gas
Mining & Metal
Automotive
Aerospace Manufacturing
Engines
Plastics
Footwear
Construction
Materials
Power
Generation
Medical
Devices
Biopharmaceuticals
Chemical
Products
Apparel
Building
Fixtures,
Equipment &
Services
Aerospace
Vehicles &
Information
Defense
Tech.
Education &
Knowledge
Creation
Prefabricated
Enclosures
Furniture
Transportation
& Logistics
Distribution
Services
Textiles
Leather &
Related
Products
Sporting
& Recreation
Goods
Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions.
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Clusters as a Tool For Economic Policy
• A forum for collaboration between the private sector, trade
associations, government, educational, and research institutions
• Brings together firms of all sizes, including SME’s
• Creates a mechanism for constructive business-government dialog
• A tool to identify problems and action recommendations
• A vehicle for investments that strengthen multiple firms/institutions
simultaneously
• Fosters greater competition rather than distorting the market
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright © 2011 Professor Michael E. Porter
Ecuador’s Cluster Export Portfolio
1997 to 2009
0.55%
Change In Ecuador’s Overall
World Export Share: +0.02%
0.50%
Ecuador’s world export market share, 2009
0.45%
Agricultural Products
Fishing and Fishing Products
(-0.63%, 1.74%)
0.40%
Oil and Gas Products
0.35%
0.30%
0.25%
0.20%
0.15%
0.10%
0.05%
0.00%
Ecuador’s Average World
Export Share: 0.11%
Tobacco
Transportation Building, Fixtures,
and Logistics Equipment and
Communication
Services
Furniture
Services
Processed Food
(-0.20%, 0.02%)
Jewelry, Precious Metals
and Collectibles
-0.05%
0.00%
Hospitality and Tourism
Textiles
Motor Driven Products
Footwear
Automotive
0.05%
Change in Ecuador’s world export market share, 1997 to 2009
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business
School;
Project
Director.
Underlying
data
drawn
from the UN Commodity Trade Statistics
Database and the IMF BOP statistics.
34
20111024Richard
– Ecuador Bryden,
Competitiveness
Presentation
– FINAL
– Prepared
by RA
Jem Hudson.ppt
0.10%
Exports of US$670 Million =
Copyright 2011 © Professor Michael E. Porter
Ecuador’s Share of World Exports by Cluster, 2009
World Market Share
0.05% - 0.1%
0.11% - 1.0%
> 1.0%
Fishing &
Fishing
Products
Processed
Food
Hospitality
& Tourism
Agricultural
Products
Transportation
& Logistics
Business
Services
Financial
Services
Textiles
Prefabricated
Enclosures
Furniture
Building
Fixtures,
Equipment &
Services
Aerospace
Vehicles &
Information
Defense
Tech.
Distribution
Services
Jewelry &
Precious
Metals
Entertainment
Motor Driven
Products
Heavy
Machinery
Production
Technology
Tobacco
Automotive
Oil &
Gas
Footwear
Forest
Products
Power
Generation
ceuticals
Chemical
Products
Apparel
Heavy
Construction
Services
Lightning &
Electrical
Equipment
Analytical
Education &
Instruments
Knowledge
Medical
Creation
Devices
Communications
Publishing
Services
& Printing
Biopharma-
Construction
Materials
Aerospace Mining & Metal
Engines Manufacturing
Plastics
Leather &
Related
Products
Sporting
& Recreation
Goods
Marine
Equipment
Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Peru’s Share of World Exports by Cluster, 2009
World Market Share
0.1% - 0.21%
0.22% - 1.0%
> 1.0%
Fishing &
Fishing
Products
Processed
Food
Hospitality
& Tourism
Agricultural
Products
Transportation
& Logistics
Business
Services
Financial
Services
Textiles
Prefabricated
Enclosures
Furniture
Building
Fixtures,
Equipment &
Services
Aerospace
Vehicles &
Information
Defense
Tech.
Distribution
Services
Jewelry &
Precious
Metals
Entertainment
Motor Driven
Products
Heavy
Machinery
Production
Technology
Tobacco
Automotive
Oil &
Gas
Footwear
Forest
Products
Power
Generation
ceuticals
Chemical
Products
Apparel
Heavy
Construction
Services
Lightning &
Electrical
Equipment
Analytical
Education &
Instruments
Knowledge
Medical
Creation
Devices
Communications
Publishing
Services
& Printing
Biopharma-
Construction
Materials
Aerospace Mining & Metal
Engines Manufacturing
Plastics
Leather &
Related
Products
Sporting
& Recreation
Goods
Marine
Equipment
Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
State of Cluster Development in Ecuador
• Ecuador has strengths in resource-related clusters, including
cut-flowers, bananas, coffee, cacao, fishing, and tourism
• Clusters that serve mainly the domestic market include textiles, apparel,
automotive, and metalworking
• Most of the clusters are shallow, with a weak supplier base
• There are weak supporting institutions with poor coordination between the
private and public sectors
• Ecuador’s clusters have been subject to traditional industrial policy
characterized by subsidies and protectionism
• Clusters could become an important tool for economic development
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Competitiveness of Ecuador’s Regions
• 75% of business activity is
concentrated in two provinces,
Guayas and Pichincha
• Ecuadorian regions vary greatly
in the quality of business
environment
• Decentralization of economic
policy remains incomplete, with
weak capacity at local level
• Free Trade Zones have been
created in some rural areas
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Action Agenda for Ecuador
Macroeconomic Policy
•
•
•
•
Maintain macroeconomic stability
Reduce the budget deficit
Create a stabilization fund
Broaden the tax base and improve collection
Social Infrastructure and Political Institutions
•
•
•
•
•
Modernize the social security system
Fight corruption at every level of government and private sector
Improve the effectiveness of the legal system
Improve system of "checks and balances“ in government
Improve human development
– Rapid improvements in education, health, and nutrition are needed
• Create equal opportunity for all groups
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Action Agenda for Ecuador
Improving the Business Environment
• Open up greater internal competition
• Further open the economy to trade and investment
– Reduce tariffs
– Simplify trade procedures
– Negotiate trade agreements with strategic countries rather than limit them
– Welcome foreign investment
• Upgrade workforce training and higher education
• Reduce informality by limiting the cost and complexity of registering
companies
– Simplify new business formation
– Reduce the tax burden and labor market rigidities facing smaller firms
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Action Agenda for Ecuador
Cluster Development
• Adopt cluster development as a central tool to engage the private sector and
implement economic policies
• All clusters are important to enhancing prosperity
• Apply a cluster-based approach to economic diversification
• Leverage clusters to attract FDI
Regional Development
• Continue decentralization of responsibilities and resources to sub-national
governments
• Improve the capacity of local governments to plan, design, and implement
development polices
• Improve national-regional collaboration to implement regional programs
• Address the underlying causes of inequality between the coastal, Andean and
Amazon regions
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Action Agenda for Ecuador
Neighborhood Development
• Improve land connectivity with neighbors
• Upgrade political and trade relations with Colombia and Peru
• Restructure the Andean Community of Nations to make it an effective
instrument for integration
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
The Need for an Economic Strategy
Policy
Improvement
Economic
Strategy
• Implementing best
practices in each policy
area
•
A prioritized agenda to
create a unique
competitive position for a
country or region
• There are a huge number
of policy areas that matter
• No country can or should try
to make progress in all
areas simultaneously
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter
Creating a National Economic Strategy
National Value Proposition
• What is the distinctive competitive position of Ecuador
given its location, legacy, existing strengths, and potential
strengths?
– What unique advantage as a business location?
– For what types of activities and clusters?
– And what roles with neighbors, the region, and the broader
world?
Achieving and Maintaining Parity
with Peers
Developing Unique Strengths
• What elements of the business
environment can be unique strengths
relative to peers/neighbors?
• What existing and emerging clusters
represent local strengths?
• What weaknesses must be addressed to
remove key constraints and achieve parity
with peer countries?
• Priorities and sequencing are necessity in economic development
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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Copyright 2011 © Professor Michael E. Porter